Short Range Outlook : October 2021

Demand to be driver of global longs market from now on, supply no longer an issue

Supply is no longer an issue in the global long steel products market, and demand will be the driving factor from now on, though it will probably be rather slow for a while because prices are normalising and delivery periods are becoming shorter. That said, this situation should be temporary. The cost of producing steel is increasing, especially on the energy side.

Demand impacted, however, by approach of end of year

Demand in the main markets worldwide appears to be flat, being strongly influenced by the approach of the end of the year. Demand for long steel products is heavily dependent on China’s behavior, both domestically and internationally.

EU mills can no longer simply dictate prices as domestic buyers’ stocks increase

The EU deformed reinforcing bar market became somewhat quiet after the summer holidays, while some EU mills are finally looking for new orders after a long period of just distributing material. Mills in the EU are no longer able to just dictate prices as the stocks of European buyers have increasingly been filled and panic over shortages has vanished. Italian mills have already reduced their prices based on lower demand.

EU mills struggle to find competitively-price scrap, but still have significant breathing space

On the other hand, the EU mills are struggling to find sufficient volumes of quality scrap at competitive prices. Moreover, the logistics situation is getting worse in terms of constituting a bottleneck. Furthermore, the strong surge in electricity costs, which have tripled or quadrupled since August this year, has tightened the pressure on EU mills, meaning they have to seek to pass on product price increases of €50-100/mt to their customers. However, the mills in the EU still have a lot of space to breathe freely since imports are less of a threat due to factors including safeguard measures, the export taxes in Russia, the cancellation of export tax rebates in China, and also the current high freight rates.

Benders still busy in Europe backed by plenty of new projects

Some good news is that, while there has been some consolidation of demand and restocking has gone down to normal volumes, benders are still busy in Europe and there are plenty of new projects on the way thanks to the EU stimulus package.

Global GDP performance provides support for longs market

World GDP is expected to grow in 2021 in comparison to 2020, showing good domestic performances in the main economies. Prices have been finding different sources of support even despite the volatility of demand. It seems like the peak has been reached as far as production is concerned. China’s decision to keep maximum production at last year’s level due to energy shortages will set the floor for prices at the current levels.

High freight rates limit intensity of competition globally

The intensity of competition in the global market currently depends heavily on freight rates. Due to high freight rates and trade measures, competition is becoming rather domestic. That said, given the uncertainties and the slow demand in the market, some suppliers such as the mills in the EU mills intend to dump their extra quantities somewhere else instead of offering to their domestic market.

Energy prices and China are crucial factors for the coming period

Asia and Europe are currently going through a severe energy crunch with all-time high prices for coal and natural gas. China seems to need to cover domestic outages by means of imports, and this has strengthened markets elsewhere. At the moment the markets are playing catch up. Scrap and steel bookings which were postponed are now quickly covered, and some nervousness over sufficient availability has crept in.

Margins will shrink, much will depend on China

Ferrous scrap, iron ore and coal prices will increase. Margins will shrink and, with energy prices too high, some mills will implement shutdowns. All of this will have less impact IF China starts to buy pig iron, hot briquetted iron and semi finished products.

Market situation stable, with far more positive outlook for next quarter

Under these circumstances, the market can still be described as stable even though there are some fluctuations. The outlook for the market in the next quarter is much more positive than we have seen for some time.




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